It’s been over 20 years since I managed a large Chevy store, but some things never change. Many dealers still have issues with the recon process and getting pre-owned inventory out to the front line in a timely manner.
The crux of this problem starts with pay plans and the fact that used car departments typically get a discounted rate for repairs. Service managers and service advisors are paid off gross, so if I’m a service manager and I have a customer in front of me that needs a brake job, shocks and tires and I’m looking at a RO estimate of $1,000, and $500 of that is gross, of course I’m going to prioritize that over a recon RO with $100 gross.
When I was a GM here’s how I solved this problem. I made a new rule: All used car repairs were paid the exact same rate as customer pay, otherwise known as door rate. Now, initially your used car manager isn’t going to like this. He or she might even go ballistic, and insist that it’s impossible to make any gross because now the cars are too expensive.
But here’s what I always found to be true. The gross you’re going to get is the gross you’re going to get, whether you’re working from a cost-up basis or a price-down basis. If the vehicle is too expensive after paying door rate for repairs, then you’ve appraised it wrong.
Let’s say a 2017 Cadillac XT5 comes in for trade. With the help of software tools such as vAuto, you can get pretty accurate appraisal and pricing parameters, as well as local market intelligence that gives you a good idea of how quickly this vehicle is likely to sell.
This data makes it easy to estimate what your gross margins will be after you’ve paid door rate for service. If the gross is too low, then you can’t offer as much for the trade.
If you’re having trouble finding vehicles, try what CarMax is doing. Offer free appraisals and offer to purchase any used vehicle, with no obligation to purchase. This saves you money in auction fees and transportation fees, which are getting to be ridiculous.
A bonus to this rule is that your service department makes more money, because you’re not giving away gross to the used car department. Service managers will prioritize recons the same as customer pay, and advisors and techs won’t be reluctant to work on them, because they’ll be getting paid better rates.
Of course, there’s a second part of the equation, which is how fast your pre-owned vehicles get to the front line. We all know there’s been a billion studies that show the faster you get a car to the front line, the more gross you’ll make.
Dispatch and workflow systems can help with this process, but the problem with these methods is that it requires manual entry by the parties involved. If the service manager delays entering the data into the system, you have no idea how long it’s taking. A repair order might take three days to close but the work was done on day one, and someone just forgot to close the RO.
While technology is a wonderful thing, sometimes an analog process can’t be beat. Here’s what I recommend. Every time a used vehicle is brought to the service department, immediately open an RO. Then take a crayon pencil and write the date and the RO number on the windshield. If all your recons are parked in the same area, it’s very easy for the GM to visually identify how long the cars have been sitting there.
I used to go out and check almost daily. If a car had been sitting there for more than a couple days, I would ask what the holdup was. Does it have an estimate? Are they waiting on parts?
The nice thing about charging door rate for your pre-owned repairs is that if you’re short on resources it’s a lot easier to justify hiring new techs, adding new service bays, extending hours or hiring an outside detailing company to help out, based on your volume. If you’re discounting all your recon repairs, it’s a lot harder to justify spending that money.
Try this and see if it works. The end result should be higher gross in service and the same gross in pre-owned sales, because the gross you’re going to get is the gross you’re going to get. If you try my super-sophisticated crayon recon method, you might even see a lift in pre-owned gross due to vehicles turning faster. Sounds like a win-win to me.